DAB Upholds Disallowance of Head Start Costs on Nepotism Grounds

 L.I. Child and Family Development Services, DAB No. 2160 (March 2008)

 

Petia Loukova-Ianicelli, CAPLAW

May 2008

 

The decision of HHS’s Administration for Children and Families’ (ACF) to disallow expenditures of Head Start funds by grantee L.I. Child and Family Development Services, Inc. (LICFD) for the salary and benefits of the CEO’s sister was sustained by the DAB.  The basis for this decision was the Head Start statute and regulations banning “family favoritism,” as well as the grantee’s own personnel policy.  Although the result here is not surprising, it is surprising that the DAB accepted ACF’s argument that an interpretation of the statutory provision included in a Head Start grants administration manual last published in 1986, not included in the Head Start regulations, and not referenced in the notice of grant award, is binding on grantees.   

Background

 LICFD hired DG as a teacher in 1983 and held various positions thereafter, including Director of Quality Assurance, and appointed her CEO in November 2004.   LICFD hired DG’s sister, VH, as social service specialist in 1993 and appointed her Training and Research Analyst on August 30, 2004.  In August 2004, ACF warned LICFD management staff, including the former CEO and DG, that nepotism was prohibited.  LICFD responded to ACF that VH, DG’s sister, had been terminated. The former CEO terminated VH effective September 13, 2004.

When DG took over as CEO in November 2004, LICFD rehired DG’s sister to her last-held position, retroactive to the date on which she had been laid off.  DG signed off on this decision, as well as on a December 13, 2004 decision for a salary increase for her sister retroactive to November 1, 2004. 

ACF Position

 ACF disallowed $66,888, the amount of salary and benefits paid to VH, because her rehiring violated the Head Start Act and regulations, which prohibit “family favoritism.”  It also violated LICFD’s own personnel policy. According to a long-standing policy published in the 1986 HHS Discretionary Grants Manual, grantees may not hire immediate family members of employees whose duties include selection, hiring, and supervision of other employees. 

LICFD Position

 LICFD argued that it had complied with the Head Start statute and regulations because rehiring VH did not constitute family favoritism.  Furthermore, to disadvantage family members in the absence of family favoritism would constitute discrimination and LICFD’s personnel policy, to which ACF had never objected, protected kinship.

DAB Holding

 On the Head Start Statute – The Head Start Act prohibits family favoritism, as well as the mere taint of family favoritism.   The Congressional intent in enacting the statute was to prevent behaviors that may appear to be inappropriate in order to ensure an objective administration of the Head Start program.  The acts of the CEO: rehiring her sister, who had been laid off by the previous CEO, and approving a retroactive salary increase, are indicative of a taint of family favoritism in violation of the Act. 

 

On the LICFD Personnel Policy – ACF’s lack of objection to LICFD’s personnel policy does not constitute acquiescence to the CEO’s hiring of her sister.  Nothing in the personnel policy alerted ACF that LICFD would find it appropriate to allow its CEO to hire an immediate family member for an administrative position.  In fact, the LICFD policy prohibited such a step on its face because there would be a “direct line management relationship.”   There was a further violation, since LICFD employed two immediate family members at the same site.  LICFD acknowledged the personnel policy violation in its correspondence to ACF in stating that the CEO should not have signed off on the decision to rehire her sister or to increase her sister’s salary. 

 

On the ACF Long-Standing Policy – In 1982, as a part of the notices of proposed and final revisions to the Discretionary Grants and Administration Manual (GAM), the former Office of Human Development Services (OHDS) published an interpretation in the Federal Register that the statute applies to Head Start grants.   While the GAM is not a current manual that continues to be updated, it has not been rescinded or revoked either.  Furthermore, in a previous decision, the DAB referenced the GAM nepotism policy in reaching a decision.  

Finally, the LICFD’s argument that the GAM nepotism provision could have been incorporated in the 1996 amendment to the Head Start Act failed because the intent of that amendment was simply to carry out the changes of the 1994 amendment, which did not address nepostism.

Footnotes

DAB decisions can be found at www.hhs.gov/dab/browsedab.html.

The LICFD policy does not bar employment on grounds of kinship, but prohibits a “direct line management relationship between two or more members of the same family.”  Additionally, if an employee has access to confidential information, no immediate family member or domestic partner may be employed at the same work site.   

42 U.S.C. 9839(a) contains the applicable Head Start provision, requiring Head Start agencies to be “free of any taint of partisan political bias or personal or family favoritism.”  Additionally, individual agencies are responsible for implementing policies that would carry out this statutory purpose. 

The DAB based its finding on the presumption that all employees who are subordinate to the CEO are arguably in a direct line management relationship with the CEO, and this was especially true here as it was the CEO who had initiated the hiring and salary increase process.

OHDS is the predecessor agency to ACF.  The applicable provision under the section “Conflict of Interest or Nepotism” in the GAM “[prohibits] the hiring of any individual if a member of that individual’s immediate family is employed in… a position having responsibilities relating to the selection, hiring, or supervising of employees”; sisters were included in the definition of immediate family.

Utica Head Start Children and Families, Inc., DAB No. 1749 (September, 2000) holding that “Utica failed to conduct its program in a manner free of family favoritism as required by the Head Start Act, regulations and policies” because it permitted the employment of the daughter of the Executive Director as the Fiscal Director.